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Tuesday, December 12, 2017

POINTS OF VIEW - Cargo demand is strong, tanker supply is tight

2003 turned into a good year – even a great year for the tanker industry. 2004 has started off exceptionally well in almost all sectors, with the products tankers the latest to get going.

Cargo demand is strong, tanker supply is tight. Much of the serious rate volatility that plagued the second half of last year, pushing VLCC rates from W50 up to W150 in a couple of weeks and then plunging them back down again, has quietened down, leaving rates somewhat steadier … most of the time.

Crucially, in some sectors, the psychology of the market is changing. For years, the ups and downs of the spot market have most of the time been attributed to the owners’ psychological state due, for instance, to the need to make the most of his ship’s position; the nervousness at being one of the few left unfixed and waiting with a costly modern unit sitting idle; the reluctance to upset a charterer who might be needed another time.

Today, in the opinion of a number of operators and brokers, charterers in the crude sector are more on the defensive than they have been for years. It’s not so much that overall tonnage supply is short. It’s just that, at a time when demand is strong, the supply of tankers which are not only high quality but also modern and double-hulled is limited – only 59% of the tanker fleet is double-hulled. Those are the criteria that a charterer would look to satisfy if it wanted to keep open all trading/sale options including heavy grades of oil to/from Europe. Those are the deals that are really driving the market. The quality single hulls and the older single hulls have been coat-tailing the bell-wether deals – sometimes, but not always, at a discount.

Thus today, at a time when VLCC rates are W150 AG/East, W200+ from West Africa and the Med; when suezmax rates are around W300 from West Africa and the Med (and up to W365 from Black Sea); when aframax rates are W300+ in the Med, W400+ in the Caribs, and W500 for the odd ice-classed vessel for Primorsk; when only 12 modern VLs are showing in the Middle East for the 30 days from mid January to mid February (although a large chunk of first half February stems have already been fixed including 32 for 1/10 dates alone); is it surprising that tanker owners are being approached by charterers to fix, off market of course, for another voyage, with more money already on the table right from the start?